MONTECITO MEDICAL REAL ESTATE
Montecito Medical Real Estate’s business model has changed the traditional
relationship between buyers and sellers of medical office properties to one in
which sellers can continue to manage their properties if they choose, maintaining both existing tenant relationships and an existing revenue stream. In addition, they can opt to reinvest a portion of the sales price as equity in a single-purpose entity led by Montecito, which becomes the asset’s legal owner.
In short, sellers enjoy both regular distributions and a return on their reinvestment when Montecito sells the property as well as significant tax advantages that
can be especially valuable to high net-worth individuals. Sellers have another
option as well: they can co-invest in additional properties that Montecito acquires
as it builds a portfolio.
The model strongly resonates with physicians, especially in today’s shifting
medical environment. In conversations with physicians about MOB sale leasebacks of their MOBs, the company has found that the opportunities to both reinvest in its own office building and to co-invest in other
MOB acquisitions gives it a greater sense of control. Much of the credibility of the model lies in its historical rate of return on its investments, which the company says has significantly outperformed both Wall Street and competitors in the sector over the past 10 years. For
these reasons the company has grown dramatically, both in terms of its acquisitions and its influence on the medical real estate field.
Montecito doubled its year-over-year acquisition volume between 2016 and 2017, and again between 2017 and 2018. Today Montecito
is a national company with portfolio properties in 27 states that totals more than 6 million square feet and has a combined value of more
than $2.8 billion. Not surprisingly, it ranked as the largest privately held buyer of MOBs in the US for both 2016 and 2017, according to
Real Capital Analytics. And it looks like the firm will see a continuation of that trend—as of 2018’s final quarter, it was on track to end the
year with a 123% jump in volume.
Driving Montecito’s growth is a seasoned collection of professionals led by CEO Chip Conk and Chris Conk, principal, acquisitions. Other
key team members are: CFO Paul Sandler; Justin Hayball, EVP of acquisitions; Bryan Skelton, SVP of finance; Bryan Brown, VP, acquisitions;
David McNeil, VP, property and asset management; Joellyn Shannon, VP of marketing and research; Doris Lacson, VP and corporate controller; Rus Gundyy, AVP of investments and underwriting; marketing coordinator Nicole Romano; and Karina Juhasz, regional asset manager.
In addition to its talent, the firm partly attributes its success to its proprietary market intelligence system, which is able to analyze more
than 10 terabytes of data on a market. Montecito uses the system to evaluate local markets and assess the value of a particular property.
This system has allowed it to evaluate $1 billion in MOBs each month, reflecting up to 100 potential deals. The company has also developed relationships with major health systems such as Cleveland Clinic, UCLA, John Hopkins, Carolinas Health System and Beth Israel.
Marcus & Millichap’s Healthcare Real Estate Group is a prolific team having recently closed more than 200 transactions
valued in excess of $1.1 billion. It has another $398.5 million worth of listings on the market. Led by Alan L. Pontius, the
advisory practice of more than 50 professionals specializes in medical office building and seniors housing investment sales.
The group arranges the sale of healthcare investment properties on behalf of individuals, partnerships, major institutions,
developers and hospital systems. To that end, it offers a range of services from property underwriting and valuation to marketing to access to a broad array of financing solutions through Marcus & Millichap Capital Corp.
Marcus & Millichap’s healthcare practice has a deep understanding of the healthcare market and believe that the medical
office sector, in particular, has a bright outlook. As SVP and national director of the healthcare real estate group, Pontius
oversees executive management of the firm’s 16 specialty divisions including healthcare. Mark Myers and Joshua Jandris,
executive managing director and senior managing director respectively, work with both Marcus & Millichap and its Institutional
Property Advisors division. They have contributed significantly to the group’s success and even, it could be said, helped to
change the landscape of the seniors housing investment advisory community.
When Myers began his career in the healthcare brokerage space 23 years ago, few seniors housing owners knew what a
transaction advisor/broker did or how these professionals could add value to a transaction. Instead, when owners were ready
to sell, most would simply call another owner in the market—often a friend—and try to put together a transaction on their
own. This resulted in low sale prices, lengthy due diligence periods and little to no earnest money by the buyer.
Not surprisingly, many deals died from inertia. Myers began to apply his education and experience as an asset manager for
a real estate syndicator to create financial and marketing positioning analyses and recommendations for his clients. He would
conduct nationwide searches for qualified buyers, run what amounted to a silent auction for the property while ratcheting up
the bids and tightening buyers’ due diligence and closing timeframes. Many of Myer’s clients had no idea such buyers even
existed. Over the ensuing years, Myers would close over 550 transactions involving more than 68,000 units and worth $5 billion.
A dozen years ago, Myers added Jandris to the team, who quickly began closing landmark transactions. One was the procurement of a $500 million engagement to sell an entire healthcare company that owned 33 skilled nursing facilities in Texas, along
with a construction company, an operating company, ancillary businesses and a home office. It was the largest private client
nursing home transaction in the US in over a decade. Jandris and Myers also closed what remains the highest sale price for a
single nursing home in the US—a property in the Bronx, NY that traded for $110 million in 2016. More recently, they sold a
MARCUS & MILLICHAP HEALTHCARE REAL ESTATE GROUP
Chris Conk Chip Conk